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You can contact the author (Teguh Hidayat) by email, teguh.idx@gmail.com. The author live in Jakarta, Indonesia.

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How to Read the News about Companies

Saturday the 26th of November, 2011, a large bridge that crosses the Mahakam
River in Kutai Kartanegara (Kukar) Regency, East Kalimantan Province, suddenly collapsed,
and killed at least 40 people. But for investors in the stock market, it is not
the number of victim that matters, or who are the incompetent developer that
responsible for the bridge construction. But, which companies that had its operations
disrupted due to the incident? Because as we all know, Kukar is a working area
of many coal mining and oil palm plantation companies, and some of which are
listed on the Indonesia Stock Exchange (IDX).

For investors who have memorized the way of working of natural resources companies,
especially coal company, the collapse of the bridge could mean that the
shipment of coal from the location of mine to the harbor through Mahakam river
will be blocked by the wreckage, and that means a negative sentiment for the related
stock.

And maybe that is what was captured by journalists from a local news
company, Detik Finance. So on Monday, November 28, 2011, they wrote an article
entitled 'The Bridge of Kukar Collapsed, Three Coal Mining Stocks Under
Pressure.' The article is based on the fact that there are at least three coal
companies that operating in Kukar, namely Indo Tambangraya (ITMG), Harum Energy
(HRUM), and Bayan Resources (BYAN). And indeed, when the news was published,
the stocks of ITMG and HRUM were dropped by 5.44% and 1.67% respectively, and BYAN
unchanged, while in fact the Jakarta Composite Index (IDX) was in green at the
day. If you hold one of the three stocks above, then you might panic after
reading the news, and immediatley sell off your holdings in a loss position.

In the news article, it was said, ‘The collapse of the bridge has made the
coal shipment of the three companies became halted'. The question, is it so? Is
the journalist have confirmed that story to the three companies concerned?

Unfortunately, it is likely that the sentence is written without any
confirmation. The statement that the collapse has disrupted the delivery of
coal, is more like an assumption than a fact. Yup, of course, anyone can easily
conclude that if the Kukar bridge had collapsed and the wreckage blocking the coal
shipping lanes of the three coal companies above, then the shipping would be
disrupted. Moreover, the local government is prohibiting the coal barge ships
to cross the bridge location until an undetermined time. But is that exactly
what is happen? Not necessarily. There should be a confirmation from the companies
in question, so the journalist (or investors) could enhance the status of those
assumptions to be facts.

One of the companies, ie HRUM, immediately released its confirmation on the
same day of the news (Monday, November 28). The company confirmed that the
collapse of the bridge would interfere with the shipment of coal for a while,
so they will reschedule several coal deliveries. This confirmation is possibly the
one that causes the stock quite fell in that day. While ITMG, in its confirmation,
they said that the collapse of the bridge would not interfere with their coal
delivery, at least until the next two weeks, as the company had enough coal stockpile
in the harbor. If after the two weeks, the shipping lane is still cannot be
used, that’s when the company will reschedule some of its coal deliveries.
Although at a glance, the confirmation of ITMG is more optimistic than HRUM’s,
but it still contains the possibility of coal delivery rescheduling, so as a
result, the stock of ITMG was also dropped.

Another company is BYAN, until this article was written, has not been
released its confirmation. Maybe the management assumes that they do not need
to release any confirmation, because the stock is illiquid. If compared to HRUM
and ITMG, the stock price of BYAN was relatively unchanged in the last three
days.

Okay then, what lessons can we take from this issue?

If you are often read the company’s announcements in the website of IDX,
you will often read an announcement with the title, 'The Company’s Confirmation
over the Coverage in Mass Media'. Yup, it is not just once or twice, the PR of
listed companies on the Stock Exchange must release an announcement that
confirmed or denied the reports in the media about their company. The point is,
most of the reports in the media only took a secondary source, which is the
flavored by certain assumptions so that be exciting. Or worse yet, there is no
source whatsoever. So as an investor, you are advised to read any corporate news
carefully. The most accurate information is the which that came from the
company itself, and it can be obtained through the website of IDX
(www.idx.co.id).

But in releasing some information, the company was not necessarily honest
about the information, was not it? Yup, that wasn’t. But it is unlikely to
happen (the company has lied), because if they do that, they will be sanctioned
by the IDX as the stock exchange authority. What often happens is, the company
'packaged' their information in an attractive form, so even though the
information is actually a bad news which could have a negative impact for the
company, but the ‘rhythm’ will still sounding positive. So in this case you are
required to be able to 'translate' the information, to interpret it accurately.
If you read the released information of HRUM related to the collapse of bridge
of Kukar, the company said that its shipments of coal in the month of November
2011 will not be disturbed (good news!), because the ships that are scheduled
to pass through the bridge has done its job. If you are read it carefully, the
'good news' is actually not that good, because what time is now? It is already
the end of November! Then what about the coal delivery in the month of December?
Well, the company did not explain it.

Luckily, the news written by Detik Finance is actually based on facts,
where the rumored companies did not deny the reports. But there are some cases
that the company denied the reports in the media. For example, some days ago
there was a rumor that XL Axiata (EXCL) will sell some of its base transceiver
station (BTS) towers, including the news that EXCL has reached an agreement with
a company to buy the tower. EXCLs PR then reacts with the released information,
that until now, there has not been any developments related to the sale of the
company BTS towers.

So if in this case the media was wrong? Not really, they only did not
complete the sentence in the news they released. When Detik Finance stated that
‘The collapse of the bridge has blocked the shipping lanes of the three coal companies',
then the sentence is incomplete. This is the complete one: 'The collapse of the
bridge is estimated to block the
shipping lanes of the three coal companies'. Unless the news is written based
on the confirmation that has been obtained before, then the word 'estimated'
could be removed, to ensure the news.

If you read various article on this blog, you will often find the word of ‘estimated’
or similar, such as 'likely', 'predicted', 'may be', and so on. The point is, if
there is an information or opinion of my own that is still an assumption, I
used to use the above words to explain that such information may be wrong, so
that you may had different information or opinion. I only use the phrase
without the words ‘estimated' or the like, if the information is sourced
directly from the company or other credible sources.

In the end, all the media have freedom of the press about what they write.
So in this case you are expected to be able to filter out any information that
you earn (including from this blog). Fortunately, the news of media often helps
investors to 'force' the company to describe the actual event, about the
collapse of the bridge or anything else. If Detik Finance did not released the
news related to ITMG, HRUM, and BYAN, then it is not impossible that these
three companies will not releasing any confirmation to investors, about their
operations.